Monday, 15 November 2010

Known unknowns and unknown unknowns

This evening Bloomberg's Tariq Panja has broken a story that Red Football Joint Venture Ltd (the parent company that issued the famous Payment In Kind loans) is to redeem all £220m of the PIKs on 22nd November. Perhaps more importantly, Bloomberg report that none of the funds to redeem the PIKs will come from Manchester United.

As has been well documented, under the terms of the bond issue, the Glazers can take £95m from the club whenever they wish. The fact that they are NOT using this dividend entitlement to repay the PIKs raises the obvious question; where is this money coming from?

There seem to me to be three main possibilities (and probably a few dozen less likely ones):

1. Refinancing
The PIKs are being refinanced with a new form of debt, secured (as the PIKs are) on RFJV's shares in Red Football Ltd. If this was the case, it would be reasonable to suppose that the interest rate on this new debt was lower than the 16.25% currently being paid on the PIKs. The question would remain as to how this debt would be repaid in the long-term and whether the burden of this repayment would fall on the football club.

2. Sale of an equity stake
The Glazers have sold a stake in Red Football Limited to a third party outside investor and are using all or some of the proceeds to repay the PIKs. The consequences of this would obviously be hugely uncertain. Who could this investor be? What stake would they own? How would their ownership impact the running of the club?

3. Sale of other assets
The Glazers have secured significant sums from another source, perhaps by selling assets. I find this incredibly unlikely as the only asset valuable enough is the Tampa Bay Buccaneers. The fact that redemption notices for the PIKs have already been issued suggests the funding is already in place which does not tally with a sale of the NFL franchise.

As someone who has repeatedly and vehemently stated that the club's money would be used to repay the PIKs, I can only eat humble pie at this point. Another source has clearly been found and that means I was wrong. I do believe however that until we have concrete answers about the source of this £220m it is best to reserve judgement about what this means for United.

Tomorrow (Tuesday 16th November) Red Football Limited announces its results for the three months to September 30th. These results may cast more light on what is going on, but there is a good chance that no further information will be forthcoming as the PIKs are held by the parent company that is not reporting its figures. I will be blogging about the figures tomorrow.



Darren said...

If it's simply a refinancing then nothing's changed.

If it's an equity sale I'll be gobsmacked.

Boss said...

I don't understand a word of it. Is it good or bad for our club? Would you mind I posted this on RedCafe? I'll credit you of course.

andersred said...


Go ahead mate.


Anonymous said...

It's semantics and a refinancing package that make sense. It won't be United that pay them this time, they'll just wait for a better moment and then United will pay them via the Glazers.

"But it's not United paying them, it's the Glazers and they own the club". David Gill, October 2011

United Rant said...

Presumably if the Glazers have refinanced they'll either have to make payments or at least pay interest. The club will be the source for either. Just delaying the inevitable repayment.

An investor will require dividends. Ditto on source of that cash.

In any case the work you and others have done has massively contributed to the Glazers change of strategy.

Boss said...

@andersoned Mate I can't make head or tails of it, I don't want to post it lest I miss something. :o Hope you understand. Why don't you post there? I'll contribute there, I'm a valued member there if you don't know.


Anonymous said...

Anders, why don't you just accept that you don't know the details of the Glazers' finances. None do us do and we don't need to; it's not our problem.

For those of us who feared that the club might be used to pay off the PIKs this is great news. United's finances actually make sense now - £100m EBITDA minus £45m bond interest leaves lots of money for transfers. We aren't broke, we aren't even poor.

Could the Glazers take money out of the club for other purposes in the future? Of course but so could any owner. I think we should just stop worrying and concentrate on the football.

Quetzalcoatl said...

Well, none of us are so-closed minded as to completely write off this development without knowing the full context. That includes the author, as he clearly states.

However, nothing in this news dissuades me that the Glazer's ownership is, in the long term, not the ideal ownership format for the club. Not least because of the lack of transparency that causes so much anxiety to the lay fan and the blogging fanalyst alike...

And before you point out that previous ownership arrangements from dodgy butchers to dodgy PLCs were hardly ideal - I agree. The longer term goal should be for football clubs to have a statutory measure of fan ownership. Idealist, far-fetched admittedly, but absolutely the way it should be.

That bigger issue forms the hinterland before which the Glazer's murky machinations are but surface detail.

Anonymous said...

If the Glazers have brought in another partner/owner by selling a part of their investment, then surely the PL/FA must ratify the change in ownership.
But of course the manner in which the PL/FA have behaved in this affair and the Liverpool affair indicates to me their general level of gross incompetence.
There is nothing in place to stop the Glazers selling the club to another buyer who puts up no more than 20% of the purchase price. Same at Liverpool. Is there anything in place that would stop their new owners from taking out a £300 million loan and loading the interest onto the club?

John said...

This has taken Everybody some what by surprise,Will be Interesting to Hear How the PIKs were paid off but as Long as The Football Clubs Finances arent used then it can only be Positive and to talk about how or where the Money came from is mere Speculation at this stage.

Anonymous said...

No John, Anders and the rest of you this has not taken many of us by surprise. The point was all of you only wanted to believe a certain viewpoint. Many of you (Anders included) has very little knowledge of multiple sources of financing and the way financing ladders work. But to each his own. You all wanted to be misled and like the sheep most of you are, your shepherd has led you to a desert. But either way, I hope you all continue your enjoyment of being fooled not once, twice, thrice but eternally.

Albert Tatlock said...

I'm assuming that anonymous above is Joel Glazer ?

ja said...

Strange sense of schadenfreude by 7.40 anonymous and his sheep analogy. We will have to wait and see what comes out in the wash as far as where the money came from. As for me, I think a better analogy is that al the renewal reds are more like sheep, stepping forward to be sheared each season. I am happy with my decision in 2005 to never knowingly give a penny towards the Glazers and remain steadfast in that conviction. I think the sale of LFC for 300 million rather than the 800 mil touted for by H&G has the Glazers running scared that their alleged 1.5 bil valuation is pie in the sky.

Red@rmy said...

I have it on good authority that the third party is Carlos Slim HelĂș

Anonymous said...

Albert, ja, sounds for you to repeat baaaa meeeh baaaa meeeh baaaa meeeh

Anonymous said...

Wait a second. Nothing's really changed has it.
All they are doing is replacing high interest debt with lower interest debt.
RFJV will still have debts of over 200m and still have only one asset to pay it.
The ONLY way this becomes a good news story is if the glazers injected equity of over 200m into RFJV.

ja said...

Anonymous 08.12. The Greeks had a word for your attitude - hubris. Until the source of the PIK repayment funds are known, I reserve judgement. FYI, I use my own analysis and judgement when reaching an opinion, no one else's.

Anonymous said...

Ja said Baaaaaaa meeeeeeeh. Be a buffalo soldier not a mutton kebab. Ahh so what does the wise old ja understand about ladder financing?

You'll be surprised what a little bit of thinking can bring your way.

Till then, baaaaa meeeeeh away

babajide said...

Anders, i have been reading your blog for a while now and i must commend you for all your hard work.

I, like everybody else here, is surprised by this latest development and I also agree that we need more information to completely understand the full context of what is going on.

That said, I have a nagging feeling that the Glazers are about to become a fan favourite. If & when they repay this PIKs, there is nothing stopping them from inviting fans of the club to become equity owners of say 45% of the club. They may not go the Barca ownership structure way completely but a form of it, but combine a majority owner with 1000s of minority owners - they keep control, fans get participation, the equity raised is used to pay off the bonds at maturity, season ticket waiting list shoots to the roof, excess cash raised is put back into the team, fans -esp you Anders sing their name at home games!!!

Perhaps i'm dreaming, but this may be a likely outcome!!! Of course until and unless this happens, LUHG for life!

Anonymous said...

Surely it's a refinance so they get 35m (approx) for the 15% of the PIKs that they bought back?

Anonymous said...

.... that one way or another the money will be coming from MUFC, because MUFC is the only cash-generating asset in the Glazer portfolio.

The headline may be "MUFC did not pay off the PIKs" but in reality we all know the Glazers can syphon up to £95m a year out of MUFC so my guess is that cash will come out of MUFC over a number of years to slowly pay off whatever refinancing model the Glazers have used.

Of course, those currently paying their money over the Glazer will swallow whatever bullsh!t gloss Gill puts on it.

Anonymous said...

So that's £220m less to spend on players?

Safe Hands said the club has £160m in bank? Why? And if they have & they sell an unsettled player (who has mates who lack ambition) then they can use this to pay down the debt! B ut it's all our / my money going out of the club while the temporary 'owner' uses none of his own money.

Anonymous said...

OT -> Theater of Dreams to now become the E45 Theater of Creams soccer bowl or the Swarfega (we'll clean up) Soccer Bowl? said...

Im surprised people are wondering where the Glazer's got the money to pay off the pik - Forbes shows the tampa bucaneers as the 4th most profitable team in the NFL earning almost £40 million each year and as Andersred has previously reported - they sold their Zapata stock and a house for £65million last year - and this is just the stuff that is public - rich families like the Glazer's always have a few assets hidden away

Diem said...

"And before you point out that previous ownership arrangements from dodgy butchers to dodgy PLCs were hardly ideal - I agree. The longer term goal should be for football clubs to have a statutory measure of fan ownership. Idealist, far-fetched admittedly, but absolutely the way it should be."

I'm still not entirely convinced by the "fan" structures of Real and Barca - seems to be a lot of time and effort spent trying to win the presidency, with all the dodgy accounting and short-termist giveaways you see in politics (tax cuts before an election, etc).

However I'm happy that the PIKs are being paid off - they can't really replace them with anything worse (ie more expensive), so exchanging for some other debt finance (loans, presumably) is a net gain.

matt said...

Keep going anders this isn't over yet. Assuming(1), nothing has changed, the debt just has a new name. Let's see what happens to Rooney in January.

Anonymous said...

Anders, the battle will go on and on. While there is honest debate, and considered speculation here - there is only secrecy and skulduggery in the greedy Glazer camp. Keep lobbing the hand grenades over there mate, never let them settle.